Real Estate - A piece of land, including the air above it and the ground

below it, and any buildings or structures on it.

Real estate is a legal term that encompasses land along with

improvements to the land, such as buildings, fences, wells and other site
improvements that are fixed in location.

Real estate development is a multifaceted business, encompassing

activities that range from the renovation and re-lease of existing buildings
to the purchase of raw land and the sale of improved parcels to others.
Developers are the coordinators of the activities, converting ideas on
paper into real property.

Real estate development is different from building. Developing is the key

word. Builders don’t build themselves. Developers buy the land, finance
the deal, and then have the best builders build under bond at a fixed cost.

Developers buy land, finance real estate deals, build or have builders
build projects, create, imagine, control and orchestrate the process of
development from the beginning to end. Developers usually take the
greatest risk in the creation or renovation of real estate—and receive
the greatest rewards.

Typically, developers purchase a tract of land, determine the marketing of

the property, develop the building program and design, obtain the
necessary public approval and financing, build the structure, and lease,
manage, and ultimately sell it. Developers work with many different
counterparts along each step of this process, including architects, city
planners, engineers, surveyors, inspectors, contractors, leasing agents and
more.
GROWTH STORY OF INDIAN REAL ESTATE - PRESENT &
FUTURE

Real Estate Industry Snapshot

• Indian real estate industry is growing with a compounded growth

rate (CAGR) of more than 30%on the back of robust economic
performance of the country.
• Almost five per cent of the country's GDP is contributed to by the
housing sector.
• Real Estate sector is subservient to the development of 269 other
industries.
• Real Estate – Second largest employment driver in India
• The nationwide housing shortage is estimated at 22.4 million
residential units and continues to increase. Rapid population
growth and the growth of India’s middle class is creating the
demand for housing.
• Household formations are increasing and to increase
homeownership, a vibrant mortgage market is under development.
Considering that mortgages account only for 2 percent of India’s
GDP, compared with 54 percent in the United States there is
enough room for growth in the future.
• Market is getting more organized with presence of overseas
developers
• Emergence of small cities – tier II & tier III cities
• New avenues of investment – hospitality, health care, integrated
townships, infrastructure corridors and others
• Investments flowing from multiple sources – FDI/PE/Institutional
Investors/Debt

Stages of Evolution – Past

• Lack of Industrial Status

• Finance being arranged mainly from pre-selling of the units
• Limited purview of the government
• Quality of construction average
• Lack of transparency

Stages of Evolution – Present

 • In line for industrial status
• Multiple sources of funding – Debt, PE, VC etc
• Enjoys strong attention of the central as well as state
government
• Remarkable improvement in the quality and designs of
construction
• Improvement in the transparency level
• Emergence of well-defined product categories

Stages of Evolution – Moving Forward

• Fully organized industry

• Well placed industry standards
• Industry regulator in place to control the sector
• FDI allowed in across real estate avenues
• REITS/REMFs increasing the depth of the market

Other Factors Propelling Real Estate Growth - Robust Economy, Rising

Per Capita Income & Rapid Urbanization

EMERGING TRENDS

• Tier II & Tier III cities

• Ribbon Development around expressways
• Infrastructure – a pushing force
• Emerging real estate zones – Health zones, Logistics &
Warehousing, Integrated Townships, Ports & Airports and
others
• Public Private Participation- Increasing Risk sharing between
participants
• Real Estate Mutual Funds- greater depth, suitable exit options
Additional Readings
The Indian real estate sector plays a significant role in the country's
economy. The real estate sector is second only to agriculture in terms of
employment generation and contributes heavily towards the gross
domestic product (GDP). Almost five per cent of the country's GDP is
contributed to by the housing sector. In the next five years, this
contribution to the GDP is expected to rise to 6 per cent.

According to Jones Lang LaSalle, faster economic growth in Brazil,

Russia, India and China (BRIC) could result in the property markets of
those nations recovering at a faster rate than the UK and US real estate
markets. It has also been suggested that India's property sector could
begin to improve from late 2009 and may attract up to US$ 12.11 billion
in real estate investment over a five-year period.

The information technology (IT) and IT-enabled services (ITES) sector

alone is estimated to require 150 million sq ft of office space across urban
India by 2010. Organized retail is also responsible for the growth in
commercial office space requirement. The organized retail industry is
likely to require an additional 220 million sq ft by 2010. Moreover,
growth is not restricted to a few towns and cities but is pan-India,
covering nearly all Tier-I and Tier-II cities.

Almost 80 per cent of real estate developed in India is residential space,

the rest comprises of offices, shopping malls, hotels and hospitals.
According to the Tenth Five Year Plan, there is a shortage of 22.4 million
dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million
housing dwelling units will have to be constructed with a majority of
them catering to middle- and lower-income groups.

Moreover, India leads the pack of top real estate investment markets in
Asia for 2010, according to a study by PricewaterhouseCoopers (PwC)
and Urban Land Institute, a global non-profit education and research
institute.

The report, which provides an outlook on Asia-Pacific real estate

investment and development trends, points out that India, particularly
Mumbai and Delhi, are good destinations. Residential properties are
viewed as more promising than other sectors and Mumbai, Delhi and
Bangalore top the pack in the hotel ‘buy' prospects as well.

The study is based on the opinions of over 270 international real estate
professionals, including investors, developers, property company
representatives, lenders, brokers and consultants.
Apart from the huge demand, India also scores on the construction front.
A McKinsey report reveals that the average profit from construction in
India is 18 per cent, which is double the profitability for a construction
project undertaken in the US.

The real estate sector is also likely to get a boost from Real Estate Mutual
Funds (REMFs) and Real Estate Investment Trusts (REITs). In fact,
according to a CRISIL paper, the REITs would have the potential to hold
at least 5 per cent share of the total global real estate market by 2010, the
size of which would reach US$ 1,400 billion in the next three years. The
paper titled, ‘Indian REITs; Are We Prepared', says that by 2010, REITs
alone would hold a market size of US$ 70 billion of the total real estate
market as its concept is gaining ground in countries like India and other
developing nations.

According to the Federation of Indian Chambers of Commerce and

Industry (FICCI), the Indian real estate sector is likely to experience
consolidation wherein bigger players may opt for outright buy of smaller
firms or forge joint ventures or business alliances with them.

Foreign direct investment (FDI) into India in the real estate sector for the
fiscal year 2008-09 has been US$ 12.62 billion approximately, according
to the latest data given by the Department of Policy and Promotion
(DIPP).

Moreover, buoyed by positive market sentiment and demand revival in

housing, four real estate companies—Emaar MGF Land, Lodha
Developers, Sahara Prime City and Ambience Ltd—are looking to mop-
up over US$ 2.35 billion through public offerings.

New Projects

• Zuri Group Global is planning to invest about US$ 247.5 million

towards setting up five-star business hotels and luxury residential
properties over the next three years.
• Accor Hospitality, the largest hotel chain in Europe, with 4,000
hotels in 90 countries will invest US$ 130 million to come up with
50 hotels in India by 2012.
• An investment of US$ 627.3 million will be made by industries in
the Aeropsace and Precision Engineering Special Economic Zone
at Adibatla, Andhra Pradesh.
• Shriram Properties, part of Chennai-headquartered diversified
Shriram Group, is planning to invest around US$ 1.02 billion in
various residential and commercial projects.
 • Unitech will invest US$ 853.42 million in construction of up to 30
million sq ft of residential and commercial spaces to be launched
by next year.

Government Initiatives

The government has introduced many progressive reform measures to

unlock the potential of the sector and also meet increasing demand levels.
The stimulus package announced by the government, coupled with the
Reserve Bank of India's (RBI) move allowing banks to provide special
treatment to the real estate sector, is likely to impact the Indian real estate
sector in a positive way. RBI has decided to extend exceptional
concessional treatment to the commercial real estate exposure which are
restructured, up to June 30, 2009.

• 100 per cent FDI allowed in realty projects through the automatic
route.
• In case of integrated townships, the minimum area to be developed
has been brought down to 25 acres from 100 acres.
• Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA)
repealed by increasingly larger number of states.
• Minimum capital investment for wholly-owned subsidiaries and
joint ventures stands at US$ 10 million and US$ 5 million,
respectively.
• Full repatriation of original investment after three years.
• 51 per cent FDI allowed in single-brand retail outlets and 100 per
cent in cash-and-carry through the automatic route.

The 2009-10 budget has also given sops to the realty sector. Developers
of affordable housing projects (units of 1,000-1,500 sq ft) have been
granted a tax holiday on profits from projects initiated in the financial
year 2007-08. Such projects would have to be completed before March 1,
2012.

At the same time, the finance minister allocated US$ 207 million to
grant a 1 per cent interest subsidy on home loans up to US$ 20,691,
provided the cost of the home is not more than US$ 41,382. This subsidy
is expected to give a further boost to the housing sector.